When it comes to ArcelorMittal, at least, Nomura’s Neil Sampat and team say, “No way.” They write:

Only c.50% of ArcelorMittal (MT)’s iron ore production is reported in its Mining division. As a result, we argue that the market misunderstands (and mis-values) the sensitivity of [ArcelorMittal's] earnings to a lower iron ore price. Our deep dive suggests falling iron ore earnings will act as a significant multi-year drag on the group, largely offsetting a cyclical recovery in steel earnings…

We acknowledge that it is counter-intuitive to become bearish on [ArcelorMittal's] iron ore exposure when the iron ore price is strong. However, we believe that this is precisely when [ArcelorMittal's] vertical integration is most misunderstood and its steel earnings most overstated. With Chinese restocking of iron ore having largely run its course in recent months, we note the downside risks to the iron ore price and [ArcelorMittal's] sensitivity to that. Following the 39% rally in [ArcelorMittal's] share price since its dip in April (vs steel sector +20%), we think now is an opportune time to take profits at the very least.

As a result, Sampat and team downgraded ArcelorMittal to Reduce from Buy.

Shares of ArcelorMittal have dropped 1.8% to $16.18, while U.S. steel has has fallen 0.7% to $27.11. Less diversified steel companies are having a better day, however: Steel Dynamics (STLD) has gained 1% to $18.97, Nucor (NUE) has risen 0.9% to $52.04 and Worthington Industries (WOR) has advanced 2% to $41.24.

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The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.